U.S. Steel (X) Up 39% in 6 Months: What’s Driving the Stock?

Shares of United States Steel Corporation X have rallied 39.2% in the last six months, significantly outperforming the industry’s gain of roughly 12.6%.

U.S. Steel, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $6.2 billion and average volume of shares traded in the last three months was around 13,691.7K. The company has an expected long-term earnings per share growth rate of 8%.

Let’s take a look into the factors that are driving this steel company.

Driving Factors

Better-than-expected fourth-quarter 2017 earnings performance, upbeat outlook and efforts to improve its operations and cost structure have contributed to the rally in U.S. Steel’s shares.

U.S. Steel swung to a profit in the fourth quarter of 2017, helped by benefits from the investments in its assets. It reported net earnings of $159 million or 90 cents per share in the quarter against net loss of $105 million or 61 cents recorded a year ago. Adjusted earnings of 76 cents per share trounced the Zacks Consensus Estimate of earnings of 68 cents.

Recently, U.S. Steel updated its full-year 2018 guidance. For the year, the company now expects EBITDA of roughly $1.7 billion (up from roughly $1.5 billion expected earlier), considering the potential market conditions resulting from the Section 232 actions and increased shipments from Granite City Works. It expects EBITDA to be roughly $250 million for the first quarter.

U.S. Steel stated that the revised guidance considers two factors, namely, the market dynamics related to President Trump’s decision to impose 25% tariff on steel imports and the recently announced restarting of one of the two blast furnaces and steelmaking facilities at Granite City Works.

U.S. Steel is actively engaged in improving its cost structure and operations on a sustainable basis through its “Carnegie Way” initiative that includes actions such as manufacturing process/logistics improvements and savings on SG&A costs. The company realized Carnegie Way benefits of $491 million for full-year 2017, mostly in its Flat-Rolled division. These actions are also expected to deliver meaningful benefits in 2018.

Notably, the company is witnessing healthy demand in the automotive space. In September last year, U.S. Steel and Japan’s Kobe Steel agreed to start construction of a new continuous galvanizing line at their subsidiaries’ joint venture, Pro-Tec Coating Company.

The move is in response to growing demand for advanced high-strength steels. The new line, involving an investment of around $400 million, will help automakers make economically lightweight vehicles to meet increasing fuel efficiency requirements and maintain high safety standards.

Stocks to Consider

Some stocks worth considering in the basic materials space are LyondellBasell Industries N.V. LYB, CF Industries Holdings, Inc. CF and Daqo New Energy Corp. DQ, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LyondellBasell has an expected long-term earnings growth rate of 9%. Its shares have moved up 15.6% over a year.

CF Industries has an expected long-term earnings growth rate of 8%. Its shares have gained 23.6% over a year.

Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have rallied 143.9% over a year.

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